TCS’ Moat Is Due for an Upgrade (to Wide), Just As Its Customers’ IT Infrastructure Is

We’ve upgraded our moat rating for Tata Consultancy Services to wide from narrow, as we have increased confidence in the company’s ability to achieve enduring excess returns on invested capital as a function of switching costs, intangible assets, and cost advantage. In addition, we’ve increased our fair value estimate for Tata to INR 1,830 from INR 1,460 as we’ve raised our expectations for revenue growth in the near and long term. With share trading at INR 2,784, however, we still view the stock as overvalued, especially given our high uncertainty rating for the Indian IT servicer.